The Basics of Special Needs Trusts

Special Needs Trusts are the cornerstone of any estate plan involving a special needs child. They preserve government benefits when the child receives an inheritance or other major asset, and also allow you to supplement their government benefits to improve their standard of living.

Special needs trusts are created to protect a beneficiary’s SSI, Medicaid and other benefits that are means-tested. In order to qualify for means-tested benefits, you have to have no more than a very limited income and property. If a person who receives means-tested benefits were to come into possession of a significant amount of property or income, they could lose those benefits.

Special needs trusts generally only allow distributions that would not disqualify the beneficiary from their received benefits. There are rules in the trust telling the trustee that the trust can not be used to pay for food, shelter, or anything the beneficiary receives benefits for.

The special needs trust is sometimes called a “supplementary needs trust” because the distributions are to supplement the benefits that the beneficiary is receiving. Another way of putting it is that it covers “special needs” that are not otherwise provided for.